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Rationale behind high staking rewards


Denis Bogdanas
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One thing that worries me about Elrond is high staking rewards. Staking gives 25-29% annual returns depending on scenario. This is significantly higher than for other PoS chains, like ~5% for Cardano and 7% target returns for  ETH (or even less?). What is the rationale behind high rewards? They will sure lead to inflation and compromise investment attractiveness.

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  • Elrond Team
On 8/15/2020 at 10:21 AM, Denis Bogdanas said:

One thing that worries me about Elrond is high staking rewards. Staking gives 25-29% annual returns depending on scenario. This is significantly higher than for other PoS chains, like ~5% for Cardano and 7% target returns for  ETH (or even less?). What is the rationale behind high rewards? They will sure lead to inflation and compromise investment attractiveness.

The inflation is capped at ~10% in first year, then year by year decreasing until reaching 0 in 11th year.

This is the inflation if there were no fees.

All fees from transactions are decreasing each day the inflation with their amount, so when they break even there will be no inflation (the extra fees will go to validators as well)

The maximum out of inflation or accumulated fees 

max(inflation, fees)

is distributed to the validators as rewards.

The limited number of seats makes this attractive to validators, enabling the 25-29% returns.

With increased adoption (and TPS) network will become sustainable by fees only, and in some scenarios the rewards supplied only by fees could exceed the first year rewards.

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